Bernanke likely to be pressed on economy’s health

Richmond Federal Reserve Bank President Jeffrey Lacker has cast a lone dissenting vote at each of the Fed’s three meetings this year because he opposes its plan to keep short-term rates at record lows until at least late 2014.

Vincent Reinhart, chief U.S. economist at Morgan Stanley and formerly the Fed’s top staffer on interest-rate policy, is among a minority who think the Fed will take action this month. He also thinks the Fed will scale back its economic forecasts.

“Slower employment growth, worsening strains in European markets … makes it likely that the Fed will mark down its already tepid forecast,” Reinhart said in a note to clients.

With long-term U.S. interest rates at record lows, further Fed bond purchases might have little effect. But some economists think a Fed move would help keep rates down should investors decide to stop pouring so much money into U.S. Treasurys. Many investors have sought the safety of Treasurys as Europe’s crisis has flared. That money has helped drive down long-term U.S. rates.

Some economists say they think most Fed policymakers recognize that an economy facing such threats as slowing job growth and a European debt crisis needs rates to stay as low as possible.

“When you have an economy that is recovering as slowly as this one, it is really vulnerable to downside shocks,” said David Jones, chief economist at DMJ Advisors. “I think more monetary stimulus is not only on the table but likely to be used.”